Hospitals object to CMS’ continued 340B drug reimbursement cut

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Crystal Yednak Senior Manager, Health Research Institute, PwC US November 08, 2019

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Hospitals received a blow from a CMS final rule issued last week that continues reimbursement for the 340B drug pricing program at a lower rate, despite a court ruling that CMS’ actions are unlawful. In its 2020 Outpatient Prospective Payment System rule, CMS states that it will reimburse participating hospitals for certain drugs purchased through the 340B program at a rate that is nearly 30 percent less.

Under the 340B drug pricing program, pharmaceutical manufacturers that participate in Medicaid must sell outpatient drugs at discounted prices to eligible providers that serve higher numbers of low-income and uninsured patients, such as critical access hospitals and disproportionate share hospitals. 

HHS had been reimbursing providers at a higher rate – the average sales price plus 6 percent – and healthcare organizations could use that money to cover the costs of uncompensated care. But in response to criticism that too many healthcare organizations had gained access to the discounts, HHS slashed the reimbursement to the average sales price minus 22.5 percent. 

Facing a drop in these payments, providers sued. In May, a US district judge declared the 2019 cuts unlawful and directed the department to rework the rule. All parties are back in court today for oral arguments in the US Court of Appeals for the District of Columbia. CMS acknowledged the ongoing litigation in its rule, saying it has collected comments on potential remedies if the court rules unfavorably to HHS’ position.

CMS is also collecting drug acquisition cost data for 340B hospitals for 2018 and 2019, which it may use to develop a remedy. In addition to the action on 340B drug pricing, CMS also released final rules related to the 2020 Medicare Physician Fee Schedule, end-stage renal disease prospective payment system and home health prospective payment system

HRI impact analysis

Providers slammed the decision to continue the reduced payments given the recent court actions, arguing that the 340B program gives safety-net hospitals necessary financial flexibility to deal with the cost of treating uninsured and low-income patients and to keep hospitals afloat that may be a sole provider running on narrow margins. 

But CMS has zeroed in on the 340B program as ripe for reform, with CMS Administrator Seema Verma saying hospitals have been buying up physician-owned clinics and giving these clinics access to the 340B discounts, boosting profits in a way the program does not intend. 

An HRI analysis of state-by-state data compiled by 340B Health, a coalition of hospitals in the program, indicates 2,541 hospitals were participating in the program as of July. 

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Ben Comer

Senior Manager, Health Research Institute, PwC US

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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